Software Associates

Assignment Question 1:
Variance Analysis report based on information in Exhibit 1
Actual Revenue = $ 3,264,000
Budgeted Revenue = $ 3,231,900
Total Revenue Variance = $3,264,000 - $3,231,900 = $32,100 (Favourable)
Actual Expenses= $ 2,967,610
Budgeted Expenses=$ 2,625,550
Total Expense Variance=$$ 2,967,610-$ 2,625,550=342,060 (Unfavourable)
Actual Profits= $ 296,390
Budgeted Profits=$ 606,350
Total Profit Variance=$ 296,390-$ 606,350= ($ 309,960) (Unfavourable)
The information given does not provide clear insight and is not
sufficient to explain profit shortfall to Norton at the 8 AM meeting.

Assignment Question 2:
Variance Analysis report based on Exhibit 2

Actual Consulting Revenue = $ 3,264,000

3,231,900

Budgeted Consulting Revenue = $

Total Consulting Revenue Variance = Actual Revenue Budgeted Revenue

= (Actual hours*Avg billing rate) (Budgeted
hours*Budgeted billing rate)
= 39000*83.69 35910*90 = $32,010 (Favourable)
Actual Hours billed = 39,000

Budgeted hours billed = 35,910

Hours billed variance = (Actual Budgeted hours billed)*budgeted average

billing rate
= (39000 35910)*90 = 3090*90 = $278,100 (Favourable)

Actual Average billing rate = $83.69

Budgeted Average billing rate = $90.00

Average billing rate variance = (Actual Budgeted average billing rate)*Actual

hours billed
= (83.69-90)*39000 = $246090 (Unfavourable)
Sum of Hours variance and average billing rate variance is equal to Consulting
Revenue variance.
Thus, $278,100 - $246,090 = $32,010

Assignment Question 3:
Spending and Volume Variance analysis of operating expenses based on
Exhibit 3
Flexible Budget accommodates the jumps in fixed costs once output exceeds the
capacity of any resource as well as pure variable costs, and mixtures of fixed and
variable cost.
Total Actual Expenses = $938,560
Total Budgeted Expenses = $877,300
Total indirect expense variance = $938,560 - $877,300 = $61,260

Expense Items
Advertising and Promotion
Administrative and
support staf
Information Systems
Depreciation
Dues and subscriptions
Education and training
Equipment leases
Insurance
Professional services
Office expenses
Office supplies
Postage
Rent - real estate
Telephone
Travel and entertainment
Utilities

Budget
15100

%Variable
0

Variable
Expense
0

191250
120000
22700
13100
38900
22440
32200
34700
36550
89600
24700
117260
38500
56300
24000

80
80
0
80
80
25
0
0
100
80
80
0
100
100
25

153000
96000
0
10480
31120
5610
0
0
36550
71680
19760
0
38500
56300
6000

Fixed
Expen
se
15100
38250
24000
22700
2620
7780
16830
32200
34700
0
17920
4940
117260
0
0
18000

Total

877300

525000

0
35230
0

In the above table,

Variable Expense = Budget Expense* %variable
Fixed Expense = Budget Expense Variable Expense
Total Variable Expense = $525,000 and Total Fixed Expense = $352,300
Total Variable Expense if for the budgeted number of consultants 105
Thus, Variable Expense per consultant = $525000/105 = $5000
Flexible budget at actual volume = Total Fixed Expense + Total Actual
Variable Expense
Total Actual Variable Expense = Variable Expense per consultant * Actual
consultants
= 5000*113 = $565,000
Flexible budget at actual volume = $352,300 + $565000 = $917,300

Spending Variance = Actual indirect expenses Flexible budget at actual

volume
= $938,560 - $917,300 = $21,260 (Unfavourable)

Volume Variance = (Actual Quantity Budgeted Quantity)*Expected variable

Expense per unit
= (113-105)*5000 = $40,000 (unfavourable)

Total indirect expense variance = $61,260 = Spending Variance + Volume

Variance
= $21,260 + $40,000 = $61,260
Flexible Budget identifies those expenses that the manager is expected to
reduce when actual activity volumes are decreasing, and the expenses that can
increase beyond the static budget when actual production or sales exceeds the
budgeted quantity.

Assignment Question 4:
Analysis of revenue change, separating the volume effect from
the productivity effect
Volume effect (Increase in the number of consultants):
Actual
consultant
hours
supplied
50850

Expected
consultant
hours
supplied
47250

Expected
billing %

Expected
billing rate

variance

76%

90

246240

Favourable
Productivity effect (billing percentage)
Actual
consultant
hours
supplied
50850

Actual
billing %

Expected
billing %

Expected
billing rate

variance

76.7%

76%

90

31860

Favourable
Revenue Quantity variance: 278100 (Favourable)

Assignment Question 5:
Analysis of actual versus budgeted revenues, consultant
expenses, and margins
Actual
Billed hours
Billing rate
Billed revenues
Hours supplies
Consultant cost
Hourly
cost/consultant
Billed %
Gross margin
Gross margin %
Budget

Contract
24000
56
1344000
28800
1036800
36

Solutions
15000
128
1920000
22050
992250
45

Total
39000
83.69
3264000
50850
2029050
39.90

83.3%
307200
22.9

68%
927750
48.3

76.7%
1234950
37.8

Billed hours
Billing rate
Billed revenues
Hours supplies
Consultant cost
Hourly
cost/consultant
Billed %
Gross margin
Gross margin %

Contract
20160
54
1088640
25200
756000
30

Solutions
15750
136.08
2143260
22050
992250
45

Total
35910
90
3231900
47250
1748250
37

80
322640
30.6

71.4
1151010
53.7

76
1483650
45.9

So, we get:

Pure
billing
rate
price
variance
Mix
variance
Revenue
rate
variance

Pure
consulta
nt cost
price
variance
Mix
variance
Consulta
nt
expense
rate
variance

Contra
ct
48000

Favourable

(13824
0)
(90240
)

Unfavoura
ble
Unfavoura
ble

Contra
ct
172800

(25200
)
147600

Solutio
ns
(121200)

(34560)
(155760)

Total
Unfavoura
ble

(73200)

Unfavoura
ble

Unfavoura
ble
Unfavoura
ble

(172800
)
(246000
)

Unfavoura
ble
Unfavoura
ble

Solutio
ns
-

172800

Unfavoura
ble

Favourable

(25200)

Favourable

Unfavoura
ble

147600

Unfavoura
ble

Unfavoura
ble

Total